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SSC Financial and Cost Accounting P-1 QUESTION #6055
Question 1

Working capital serves as an indicator of a firm's:

  • Asset utilization efficiency
  • Level of non-current liabilities
  • Amount of non-current assets
  • Liquidity position✔️
Correct Answer Explanation

Working capital $= \text{Current Assets} - \text{Current Liabilities}$. It measures how much liquid resource the firm has available to meet its short-term obligations. A positive working capital means the firm can cover its current liabilities — this is a direct measure of liquidity, not asset utilization, non-current liabilities, or non-current assets.